The Complaint names as individual defendants the Chairman of the
Board. Ungermann, FVC Chief Financial Officer ("CFO") James O. Mitchell
("Mitchell"). FVC Vice President of Engineering and Chief Technical
Officer Sequeira. FVC Vice President Sales Alan J. McMillan, and FVC Vice
President of Access Business Units James M. Nielsen. The Complaint does
not name as a defendant FVC CEO Beyer.

The gravamen of plaintiffs' Complaint is that the January 1999 press
releases announcing the unaudited financial results for the fourth
quarter 1998 were false because defendants knew at the time the press
releases were issued that FVC's relationship with Nortel was being
restructured and therefore that FVC could not, consistent with GAAP,
recognize at least $7 million in sales to Nortel as revenue:

Complaint ¶ 22 see also ¶ 30 (defendants knew in January 1999
that inventory slapped to Nortel was subject to Nortel's right of
return).

DISCUSSION

The PSLRA requires a plaintiff to speedy each statement alleged to have
been misleading. the reason or reasons why the statement is misleading,
and, if an allegation regarding the statement or omission is made on
information and belief . . . . [to] state with particularity all facts on
which that belief is formed." 15 U.S.C. § 78u-4(b)(1). The plaintiff
must also state with particularity facts giving rise to a strong
inference that the defendant acted with the required state of mind."
15 U.S.C. § 78u-4(b)(2). The Court shall dismiss any complaint that
does not meet these requirements. See 15 U.S.C. § 78U-4(b)(3)(A)
(emphasis added).

In order to satisfy the requirement of pleading a strong inference of
the defendant's required state of mind, a plaintiff 'must plead, in great
detail, facts that constitute strong circumstantial evidence of
deliberately reckless or conscious misconduct." Silicon Graphics Inc.
Securities Litigation, 183 F.3d 970, 974 (9th Cir. 1999). As the Ninth
Circuit recently explained:

although facts showing mere recklessness or a motive
to commit fraud and opportunity to do so may provide
some reasonable inference of intent, they are not
sufficient to establish a strong inference of
deliberate recklessness. In order to show a strong
inference of deliberate recklessness, plaintiffs
must state facts that come closer to demonstrating
intent, as opposed to mere motive and opportunity
. . . [P]articular facts giving rise to a strong
inference of deliberate recklessness, at a minimum,
is required to satisfy the heightened pleading
standard under the PSLRA.

Id.

Plaintiffs attempt to meet this standard by alleging that defendants
knew in January 1999 that Nortel was changing its relationship with FVC
and would only pay for products upon shipment to the end user. To bolster
their allegations of fraud, plaintiffs also contend that defendants had
the "motive" to engage in fraud as is evidenced by their sales of FVC
stock in February 1999, shortly after the announcement of the "false"
fourth quarter 1998 results. As is explained below, the Complaint's
allegations do not support a strong inference that any defendant acted
with recklessness, let alone the deliberate recklessness or conscious
misconduct required by the PSLRA.

According to plaintiffs, the defendants collectively sold 13.3% of all
stock and options controlled by them; 535,000 shares for $7,525,850 in
proceeds. Thus, the defendants retailed over 86% of their exercisable
stock shares. This percentage, in and of itself, is not suspicious and in
fact suggests that defendants were not aware at the time of their stock
sales that the January 1999 press releases contained false information.
See Silicon Graphics, 183 F.3d at 987 (no strong inference of fraud where
defendants retained 90% of their holdings); In re Apple Computer Sec.
Litig., 886 F.2d 1109, 1117 (9th Cir. 1989) (holding on summary judgment
that sales of 8% of total holdings of $84 million were
insufficient to create a triable issue); see also Worlds of Wonder Sec.
Litig., 35 F.3d 1407, 1425 (9th Cir. 1994) (minimal sales of stock
negates inference of scienter).

Moreover, all insiders (officers and directors) retained over 90% of
their stock holdings. See Silicon Graphics, 183 F.3d at 986 (court can
consider SEC filings under incorporation by reference doctrine). This
percentage is more meaningful than the percentage of stock sold by
defendants where, as here, the complaint is devoid of any specific
allegations as to any defendant. To hold otherwise would allow a
securities fraud plaintiff to "cherry-pick" defendants based solely on
the fact of whether, and how much, an insider sold.

The individual percentages of stock sold by each defendant are likewise
not sufficiently suspicious to support a strong inference of
recklessness, let alone deliberate recklessness. Only one defendant,
James Nielson, sold more than 30% of his holdings, Ralph Ungermann, the
largest shareholder, sold 200,000 shares; only 7.33% of his holdings.
Thus, he retained over 92% of his holdings, a decision which cost him,
according to plaintiffs' calculations of the decline in the value of the
stock, over $9 million. See Silicon Graphics, 183 F.3d at 987 (holding
that selling 7.7% of stock does not support a strong inference of
deliberate recklessness). Mitchell, the CFO, and Sequeria, the Chief
Technology Officer. each retained over 80% of their holdings. These
percentages are also insufficient to support an inference of scienter,
especially in absence of any other allegations in the Complaint which
suggest that these defendants (or anyone at FVC) were aware in January
1999 that the January 1999 press releases contained false information.

McMillian, the Vice President Sales, sold 29% of his shares. While this
amount is larger than the other defendants, it is insufficient to support
an inference that the other defendants were engaged in fraud, especially
in light of the fact that his holdings are a tiny percentage of all
insider holdings. See Silicon Graphics, 183 F.3d at 987. This percentage
is likewise insufficient to support an inference of scienter as to
McMillian in light of the Complaint's lack of any factual allegations
that suggest that (1) Nortel advised FVC in the fourth quarter 1998 of
its change in practice, (2) McMillian was aware of Nortel's change of
practice before the press releases were issued, and (3) McMillian saw the
press releases before they were issued, knew the figures announced were
wrong, and had the ability to control the content of the press releases.

Defendant Nielsen did sell what appears to be a "suspicious" amount of
stock: 92% of his holdings. Nielson, however, held far fewer shares than
any other defendant. See Silicon Graphics, 183 F.3d at 987. Moreover, his
position — Vice President of FVC's Business Access Unit — does
not in and of itself suggest that he would be aware of the alleged false
statements in the January 1999 press releases and, as is the case with
the other defendants, the Complaint is wholly lacking in any allegations
that suggest Nielson had any knowledge of any alleged false statements.
See Silicon Graphics, 183 F.3d at 987. In sum, the selling of a high
percentage of shares by a Vice President cannot — without more
— support an inference of scienter let alone a strong inference.

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